The “Real-Feel” Unemployment Numbers

Borrowing From Meteorologists On The Use Of Real-Feel Temperatures To Describe The Real-Feel Labor Market Misery Index

A common descriptive technique used by weather forecasters and professionals is to modify the actual ambient outside temperature by adding humidity. The result is a better indicator of what the outside temperature “feels” like to humans when they venture out.

The same technique can be applied to the official unemployment statistics by adding the number of workers who have dropped out of the labor force or are marginally employed in jobs that underutilize their education and work experience.

The “real-feel labor market misery index can be calculated in a six step method that modifies the official method.

1. The official method for calculating the unemployment rate begins with the estimate of the U. S. population of eligible workers over age 19 and under 75. This number reflects the universe of potential workers who could possibly work, and is currently about 200 million. The official method subtracts out military workers and soldiers and people who choose not to work, in order to come up with the Civilian Labor Force. About 155 million of the possible 200 million workers in population are counted as being part of the U. S. civilian labor force. About 45 million potential workers are not counted as being a part of the civilian labor force.

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Civilian Labor Force

2. Generally, about 67% of the civilian labor force is either working at a job or actively seeking a job. About 140 million people have jobs. The current labor force participation rate has been dropping since the dot.com recession of 2001.

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Civilian Participation Rate

3. Beginning with the economic downturn in 2001, about 3 million workers out of the potential 155 eligible workers have left the labor force because they have given up trying to find a job. Because they have chosen “not to participate” they are not counted in the official method of deriving the rate of unemployment.

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Civilian Employment

4. The official number of unemployed workers is about 15 million. But, the other 3 million who no longer “participate” need to be added to that number to more accurately reflect the rate of unemployment. The total number of people who would like to find a job is probably closer to 18 million. If they were counted, the official U. S. unemployment rate would be around 13%. This does not count the other 45 million potential workers who eligible in terms of age to join the labor force.

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Unemployed

5. Many of the 140 million workers who have jobs are employed in jobs that do not pay a salary or income that is historically consistent with their skills and education. They are called “underemployed.” They would like to find better jobs, but they are like IT professionals who work as the door greeter at WalMart or drive a taxi. About 18 million workers, out of the 140 million who are currently counted as having jobs are underemployed. If those underemployed workers are added to the other 18 million who are unemployed, then there are about 36 million workers who would either like to find a job, or would like to find a job that paid them a salary that was consistent with their education and experience. If these underemployed workers were added to the unemployed workers, the rate of unemployment and underemployment would really be about 24%. This rate begins to get at the “Real Feel Index of Labor Market Misery.”

6. However, like the oppressive humidity in the South being added to the temperature, the last step in modifying the official rate of unemployment requires one additional step. The duration of unemployment is going up because there are not enough jobs in the labor market, no matter how hard the unemployed workers search for a job. The average length of unemployment is about 28 weeks. The number of jobs that have been permanently destroyed in America since December 2007, is about 8 million. These are just like the 900 jobs at the Dell plant in Winston Salem, N. C. that were recently shipped to Mexico. Those 900 workers at the Dell plant will not be called back to fill those jobs when the economy recovers. The duration of unemployment is going up because the U S economy is not creating jobs fast enough to overcome the rate of job destruction, primarily caused by the disastrous trade policies that confused exporting products with offshoring jobs. There are not currently enough jobs in America, and the rate of job destruction is much greater than the rate of job creation. The rate of misery for unemployed workers goes up as the duration of unemployment rises.

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Average (Mean) Duration of Unemployment

If the current woefully inadequate economic policies continue unchanged in America, then it is likely that the 36 million workers who are unemployed or underemployed will never find a “real” job again, that pays “real” wages, and offers “real” benefits. Those workers are in danger of becoming permanently unemployed, just like their labor market counterparts over in Europe.

One estimate of the labor market misery in the U. S. prepared by Bloomberg places the figure at around 52% of the civilian labor force. These 52% of the workers in the civilian labor market, in other words, feel miserable about their job situation.

The only viable economic policy alternative for massive permanent unemployment in America is to increase the rate of investment in small businesses. It is an irrefutable economic fact that small business creates almost 100% of all new jobs.

In order to avoid permanent unemployment in America, small business must first re-create the 8 million jobs that have been permanently destroyed since 2007, and then create an additional 28 million jobs to begin to make an improvement in the Real-Feel Rate of Labor Market Misery.

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Article by Thomas E. Vass, The Private Capital Market, Inc. tvass@privatecapitalmarket.com

November 7, 2009